Watts and Revolts- more Intermountain Rural Electric controversy

 

In the September issue  of Watts & Volts, IREA management attempts to make three arguments:

  1. They say the investment in Comanche 3 will save their customers money relative to gas generation.
  2. “There is no way to produce large amounts of reliable power without CO2.”
  3. They attempt to brand members who oppose their actions as extreme environmentalists who want to ruin our economy and send us back to the Stone Age by imposing gigantic taxes on CO2 emissions.

None of these arguments hold water.  I will deal with each in the order I’ve listed them above.

1. The investment in Comanche 3 will save their customers $950 million relative to gas generation. 

Natural gas prices are indeed high, and likely to remain high, which does make pulverized coal a relatively attractive option.  However, by refusing to consider renewable energy alternatives, they are simply shifting the risks for their customers from rising natural gas prices to rising coal prices. 

            As they say, “Because most power plants built during the last 20 years burn natural gas, electric rates skyrocketed when gas prices increased dramatically.” 

            Let’s think about that.  Why was most generation built during the last 20 years gas-fired?   Because, at the time, gas generation seemed to be the lowest cost option.  Now coal seems to be the lowest cost option, at least to IREA management, and they spent $130,000 on a consultant “to evaluate the opportunity.”  Considering the fact that the $100,000 consultant they chose to pay for “scientific data, analysis, and perspective on global warming issues” was chosen because he was one of the few proponents of the perspective they wanted, is it preposterous to wonder if the consultant they paid $130,000 of members’ money “to evaluate the opportunity” was chosen because he was ready to endorse the course of action they had already decided on?

Here are some facts their consultant seems not to have considered.

  • The rise in natural gas prices was unexpected by utility planners who decided to build so many gas-fired plants, which are the cause of the current “skyrocketing” electric rates.  Could coal prices do the same thing, even though the “experts” don’t think they will?
  • Water is a scarce resource on the Western Slope.  A typical coal plant uses 25 gallons of fresh water in the process of generating 1 kWh of electricity.  0.47 gallon is completely lost to evaporation.   Some quick math shows that a 750 MW coal plant will use almost 19 million gallons of water every hour, over 350 thousand gallons of which will be lost to evaporation every hour.  What would be the effect on electricity prices if Comanche 3 were actually charged a market price for that water?  If that water cost just five cents a gallon, electricity prices would have to rise to 2.5 cents a kWh just to pay for the cost of water.
  • There will be many new sources of demand for coal in the United States in the next few years.
    • 150 new coal plants are currently in the planning stages around the
      United States.
    • Companies such as Sasol and Rentech are commercializing the process of turning coal into liquid fuel in response to rising oil prices. 
    • While there is still a lot of coal in the ground, transportation of coal out of
      Wyoming’s River Basin, which supplies 40% of US coal (and more than that of
      Colorado’s coal) is constrained by existing railroads, and subject to
      disruption due to weather.   About 80% of the cost of coal is the cost of transportation, part of which cost is the cost of diesel of the train locomotives.
  • Coal plants typically have a planned lifetime of 50 years, so the investment in Comanche 3 is has the effect of tying IREA electricity prices even more tightly to coal prices for 50 years to come.  They seem to think that they can predict coal prices 50 years into the future.  Given the fact that the builders of gas turbines made such horrible predictions for the price of natural gas over a period of less than 20 years, 50 year predictions of coal prices seem even more laughable
  • As the effects of global warming become evident, political pressure will increase to do something about it.  Some sort of carbon caps or tax will likely be imposed within the next 50 years (probably sooner), which is unlikely to exempt current carbon emitters.  This will surely increase the price of electricity from coal… whcih is why IREA has been fighting so long and hard to deny global warming.

“There is no way to produce large amounts of reliable power without CO2.” 

This statement has two problems with it.  First of all, it starts with the premise that IREA needs to produce large amounts of additional power.   Another option would be to engage in a radical energy efficiency program, including rebates to customers for the purchase of energy efficient appliances, lighting, and other improvements, combined with demand side management to decrease peak loads. 

These measures actually make the grid more reliable, because energy which is conserved does not have to be transmitted, and so puts less strain on the existing power lines and base stations.   Clearly, energy conservation not only does not produce CO2, but actually reduces it through reduced electricity generation.

Demand side management involves paying (usually large industrial and commercial) customers to shift non-critical electric demand to times when there is plenty of energy available.  A farmer could be paid to run his irrigation pumps at night rather than during the day, saving him money, and allowing the utility to avoid investing in costly new capacity.

The standard objection to these types of programs is that the cost is borne by the utility customers in the form of a small per kWh surcharge.  While it is true that the cost per kWh of electricity goes up, most customers will see their overall bill go down, because they will be using less electricity as the result of the conservation measures.

The second problem is they are assuming that the intermittent nature of wind generation would be a problem.  Many studies have shown that up to 10% to 20% (and possibly even more) wind can safely be integrated safely be integrated into the grid with only minimal back-up power.  I’m no expert on utility wind integration, but considering IREA has no wind, and after the completion of the current planned wind farms, the island of Maui will be getting 20% of its electricity from wind (and the fact that Maui is a closed system, with no options for selling excess generation or buying in times of shortfall,) there is certainly room for IREA to increase its exposure to wind.   Coal plants also require some backup power, as they must periodically be shut down for maintenance.

Their quick dismissal of wind power because of its “unsightliness, noise, and danger to birds” is ludicrous, when compared to their chosen option, a coal power plant.  I’ll eat my words when Comanche 3 wins its first award for beautiful architecture or people start going there for the “peace and quiet.”  

They go on to say “wind resources are typically not near load centers (i.e. places where people live and work)” which would make the whole issue of “unsightliness and noise,” if it were actually an issue, unimportant. 

More birds are killed nationally by flying into the glass windows of skyscrapers than by wind turbines (the ratio is thousands to one), and they are both quieter and more attractive than coal plants.  They also say that wind power “must be backed up by conventional generation.”  This is false.  At low wind penetration (<10% to 20% of total generation, according to the study cited), wind only needs a very small backup from other sources of generation, and using multiple wind farms in different locations “firms” up wind power, allowing for even less back up.

As for the price of wind power, new wind power is cost competitive with new coal plants, even when the cost of transmission is taken into account.

They attempt to brand members who oppose their actions as extreme environmentalists who want to ruin our economy and send us back to the Stone Age by imposing gigantic taxes on CO2 emissions. 

They quote Bjorn Lomborg about the potential costs of implementing the Kyoto Protocol.  This is quite beside the point.  Choosing not to make a huge investment in a coal plant is completely different than complying with the Kyoto protocol.  The Kyoto Protocol calls for a reduction in emissions.  We’re not talking about reducing emissions, we’re talking about diversifying our generation base to protect us from rising costs of fossil fuels, which has the added benefit of not increasing emissions, while saving money as well.

As my arguments above demonstrate, opposition to the Comanche 3 investment is based upon sound economics, and would have additional secondary benefits for the economy in IREA’s service territory by keeping money in their rate-payers’ pockets with energy efficiency measures, and decrease the volatility of electricity prices with investments in fixed-cost wind.

The environmental benefits of not increasing particulate, CO2, mercury, SOx and NOx emissions, as well as conservation of limited water resources are simply icing on the cake.   While there are uncertainties as to the size and timing of the effects of global warming, even IREA is no longer denying that global warming is happening, and so they must agree that if we can avoid unnecessary CO2 and other emissions while receiving economic benefits at the same time, it would be a good thing.

 

 

For more information on the members’ group which is working to get more of a voice in IREA decisions, go to IREAVoices.org

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2 Comments

  1. We are having the same debate with TXU in Texas. They want to build a huge lot of coal plants and they argue it will lower electricity prices and prevent future blackouts (which they imply are forthcoming). I was really looking for a solid economic response to their arguments and you’ve presented it here.

    Notably, I think the coal companies dismiss renewable electricity forms, such as wind and solar, as expensive and uncapable of delivering demand. Even assuming we can’t use wind and solar farms to replace coal (which I argue we can supplant a little bit of the coal sourcing), your points in part II really drive home how we can relieve the grid. On the individual level, if people can be incentivized (??) to take steps to reduce personal consumption by acting differently (use CFLs, etc.), then the grid won’t be in such dire need for capacity expansion.

    I think the electricity companies are feeling the competition from growing supplies of alternative energy and they are trying to rush to add capacity (what with permitting laws in flux, etc.). This is a tough area that we need to start addressing for the future. Here in Dallas, we have some bad air, so the issue is getting real hot. Thanks Tom.

  2. tomkonrad said

    PK –
    I’m glad to hear this may be of some use outside my little area.

    The arguments about risks of rising coal prices are actually even more applicable in TX than in CO… coal has to travel farther to get there, requiring more diesel fuel for the trains to bring it (although I admit I don’t know how much oil would have to go up to increase the price of electricity from coal by 1 cent per kWh.)

    The other reason that utilities around the country are rushing to build coal plants is that they want them built before some sort of carbon cap and trade scheme is put in place. In Europe, the old CO2 emitters made a lot of money from their scheme by making small changes to reduce CO2 and thus freeing up a lot of carbon. The utilities want to increase their carbon footprint now, so they will have more to reduce later, and thereby be able to rake in the bucks.

    Is that perverse or what?

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